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Does Reporting Your Debtor's Bad Check to Prosecutors Violate the Automatic Stay? (Legal Corner).
You authorize a "cash sale" to a sole proprietorship customer. Your delivery driver picks up a check from your customer with delivery of the goods. The goods are delivered, but when the business check from your customer is presented, it is returned "NSF." The bank presents the check twice for payment, but the check does not clear. You send a letter demanding the debtor replace the check. However, you receive notice that your customer filed an individual Chapter 7 bankruptcy (the liquidation chapter of the Bankruptcy Code) and scheduled your company as a creditor for the amount of the bad check.
You are well aware that with your customer's bankruptcy filing, all collection efforts on the NSF check must immediately cease because of the automatic stay. However, can you make a criminal referral to the county prosecutor for prosecution of the debtor under the state's bad check statute? In a recent bankruptcy case, In re Hartung (1), the bankruptcy court considered the question and found the creditor had not violated the automatic stay.
Bad Check, Bankruptcy and Criminal Referral
The debtor, an individual, issued a check to the creditor for goods. The check did not clear after two attempts by the bank and was returned "NSF" The debtor filed a Chapter 7 petition, and scheduled the creditor as holding an unsecured claim for the amount of the NSF check. The creditor reported the bad check with the county prosecutor for criminal prosecution. The county prosecutor pursued the debtor for the crime of passing a bad check. The debtor advised the county prosecutor of the bankruptcy filing. The prosecutor stated the bankruptcy did not discharge the bad check debt. The debtor was convicted and ordered to jail.
Debtor Claims Creditor Violated Automatic Stay
The debtor contended that the creditor willfully violated the automatic stay by reporting the debtor's bad check to the county prosecutor for criminal prosecution. The debtor argued that the creditor's referral to the county prosecutor was an attempt by the creditor to collect on the delinquent account. The creditor claimed that reporting the bad check to the county prosecutor was for information purposes and not to collect a debt. The debtor conceded that the county prosecutor's criminal prosecution of the debtor was excepted from the automatic stay. However, the debtor claimed that because the creditor violated the automatic stay by referring the matter, the prosecutor could not proceed with its criminal prosecution against the debtor.
How Broad Is the Automatic Stay?
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